Morris on Patent versus Regulatory Exclusivity under the Hatch-Waxman Act

The pharmaceutical industry is exceptional. Pharmaceutical development is one of the most cost- and time-intensive areas of technology largely because it is one of the industries most subject to regulatory intervention. Unlike most other technologies, pharmaceuticals are heavily regulated by the Food and Drug Administration (“FDA”) to ensure their safety and efficacy; indeed, the FDA regulates the manufacture and marketing of pharmaceuticals more strictly than it regulates food, dietary supplements, or cosmetics. The pharmaceutical industry is now exceptional in two additional ways. First, pharmaceuticals are subject to provisions both limiting and extending patent protections that do not apply to other technologies. Second, pharmaceuticals now enjoy non-patent regulatory exclusivities that no other technology enjoys. Both the latter two exceptions are thanks to the Drug Price Competition and Patent Term Restoration Act, known informally as the Hatch-Waxman Act after its two leading sponsors, and its subsequent amendments.

Some of Hatch-Waxman’s provisions favor brand-name pharmaceutical innovators, whereas other provisions foster market entry of generic pharmaceuticals and their typically much lower-price imitations of brand-name pharmaceuticals. In terms of increasing generic entry, the Hatch-Waxman Act seems to be a huge success, although a number of other unintended consequences also seem to have arisen from Hatch-Waxman’s provisions. One change that many commentators continue to debate, however, is the creation of periods of regulatory exclusivity. Some sort of market exclusivity is widely believed to be necessary to protect the large investments that pharmaceutical manufacturers invest in creating and testing new drugs. For most of the pharmaceutical industry’s history, however, patents have been widely regarded as a highly effective means of providing such exclusivity. What, then, can be the role of regulatory exclusivities?

Originally created partially in compensation for the more pro-generic provisions of Hatch-Waxman, and partially to incentivize further studies on existing drugs, regulatory exclusivities may also provide other advantages. Accordingly, the following discussion looks at regulatory exclusivity as not just an adjunctive form of exclusivity but in fact as a possible alternative to patents. This article therefore takes a closer look at the differences between the two and how data exclusivity more aptly protects innovation in the pharmaceutical industry.

The discussion concludes that, depending on whether pharmaceutical innovators are currently receiving enough of the returns on their investments, leveraging the potential advantages of regulatory over patent exclusivity may be more or less difficult. Regardless, given the exceptionalism of the pharmaceutical industry and its unique regulatory exclusivities, examination of how to take advantage of that exceptionalism is warranted.